Luminant restarts power units early as natural gas prices rise

HOUSTON — Luminant is bringing three coal-fired power units in East Texas back online two months earlier than planned, saying higher natural gas prices now make the plants economic to run.

Dallas-based Luminant, the largest power producer in Texas, said one unit at its Monticello plant and one at its Martin Lake plant will go online Feb. 15. A second Monticello unit will be fired up on March 1. The generators, mothballed for the winter in October, originally were scheduled to return to service May 15.

Natural gas prices have jumped 50 percent since last fall. Because much of Texas’ power is generated by natural gas, a rise in its price causes electricity prices to rise as well. More coal plants then become profitable because they can sell their power at the same higher prices.

“The units were not economic under lower power prices, but with the natural gas prices going up and the power prices going with it, we are bringing them out a season early,” said Brad Watson, director of communications for Luminant.

Natural gas closed at $5.38 per million British thermal units on the New York Mercantile Exchange on Monday, up from $3.56 last Oct. 1.

The two Monticello units coming back online can produce 583 megawatts each. The Martin Lake unit can generate 750 megawatts. Combined, the three will add enough capacity to the grid to power more than 380,000 homes under extreme weather conditions.

The additional generation is coming online just weeks after near-record cold weather demand combined with unexpected power plant shutdowns Jan. 6 to push the state close to the sequential regional power outages called rolling blackouts.

Wholesale electricity prices have spiked several times since then as other plant outages cut power supplies.

In Texas’ competitive electricity market, wholesale prices that typically stay well below $100 per megawatt hour can rise to a regulatory cap of $5,000 as demand approaches generation capacity.

Tuesday’s spot prices, for example, neared $300 per megawatt hour just after midnight, fell to $40 by 4 a.m., then shot up to $570 by 7 a.m.

Energy traders say the additional generation from Luminant should reduce the volatility in spot prices, which also has put upward pressure on the prices in futures contracts through which much power trade takes place.

But those higher futures prices also reflected traders’ assumption that the 1,916 megawatts from the three Luminant units would be offline until May.

Since retail electric providers typically lock in their prices in advance through futures contracts, higher prices in that forward market eventually result in higher consumer rates.

“When Luminant originally filed to have their generation off until mid-May, we accepted that as fact,” said Adam Sinn, an independent Houston-based energy trader. “We made our trades on the basis of the lack of generation.”

The Luminant plants are the first to benefit from a new rule established last May by the Electric Reliability Council of Texas, which operates most of the state’s grid.

It permits generators to turn units on or off with 15-day notice, subject to the council’s approval.